Lower diesel prices in the US and around the world are expected to raise fuel prices and inflation, raising concerns as the winter months approach.
“The global figures for distillates are high,” said Patrick De Haan, head of oil research at GasBuddy.
“It’s not fun. That doesn’t mean you’ll see widespread blackouts, but if we do get some cold weather, things could get tough.
Researchers say the world’s growing abundance of fossil fuels is reaching its peak as the cold turns into diesel, the fuel that powers cars and buses and is also used for heating.
“This is the beginning of the oil heating season. This is where demand starts to pick up as we move into the winter months,” said Debnil Chowdhury, head of North and Latin America refining and commodity research at S&P Global Commodity Insights.
The country has about 25 days of diesel left, a level that is known to be very low. Mr De Haan said that in most cases, the country’s supply is approaching the “low 30s” depending on the number of days left.
Much of the country’s attention has been focused on petrol prices, which have fluctuated throughout the year. They have generally fallen in recent months following the $5-per-gallon interest rate hike in June.
Gasoline and diesel are made from oil, and oil prices rose after Russia annexed Ukraine.
Consolidation has also disrupted the diesel market.
These factors include reduced refining capacity due to the pandemic, increased demand amid the recovery from COVID-19 and increased Chinese exports, Chowdhury said.
“Demand for diesel came back faster than other products. There are refineries that have been closed all over the world so that the ability to supply has been disrupted,” he said. “And finally, China, which is a major exporter of diesel… was unable to export.”
“All of these factors combined have led to a global shortage of resources,” he added, citing the recent increase in jet fuel, which may need to compete with diesel at refineries.
He added that the response to Russia’s invasion of Ukraine has also helped restore the oil trade as many European countries shun Russian products, leading to market volatility.
In addition to the long-term closure, De Haan also highlighted some of the recent ones in the Midwest.
“The refinery fire in Northwest Indiana and now … the closing of the BP Toledo refinery, that’s a refinery that makes a lot of diesel because they process a lot of Canadian oil, so that doesn’t help at all,” he said. .
Experts say the problem is expected to worsen in a way that has not been seen in the past four decades. Higher diesel prices can increase the cost of transmission and heating.
“The rise in the price of diesel affects everyone, because diesel prices also affect production, driving and heating. As diesel prices rise, so does the cost of the product to consumers,” said Suzanne Danforth, an analyst at Wood Mackenzie, in a statement to The Hill.
Danforth added that this could also contribute to a recession, as rising prices would reduce demand for goods.
“Higher diesel prices are likely to result in higher fuel prices especially if the current rate of inflation does not continue, increasing the risk of demand collapse and increasing global economic opportunities,” he said.
However, he said that if the economy is down, this would also help lower diesel prices.
But the problem of heating costs will not affect Americans equally. Heating oil is used mostly in the Northeast, and that area could be hit hard by the big subsidies.
The Biden administration, for its part, wants to force the industry to increase the amount of diesel.
In a recent interview with Bloomberg, the Director of the National Economic Council, Brian Deese, called the production rate “disproportionately low” and called on companies to develop their own equipment.
Energy Secretary Jennifer Granholm has called on companies to reduce shipments of “refined products” that include diesel and gasoline, in recent weeks, arguing that these products are needed.
The industry, however, has pushed back, saying exports are essential to maintaining global supply, especially amid disruptions caused by the conflict in Ukraine.
“Decreasing global supply by reducing US exports to produce regional resources is only increasing the global deficit,” ExxonMobil’s CEO reportedly wrote to Biden officials last month.
Overall, Chowdhury said, there are few options to solve the problem.
“It’s a tough situation to get out of,” he said.
